Using a Trust to Protect Your Assets
We recently had a client who encountered a challenging situation. He was the founder of a company, but had stepped away from day-to-day operations. When the company faced a cash crunch, the bank asked him to sign a personal guarantee due to his status as the primary owner. Unfortunately, the company struggled, and the bank called in the guarantee.
In hindsight, if he had placed some of his discretionary assets, like recreational property, into a trust when things were going well, he would have been in a much better position.
The bank would still have approved the loan and accepted the guarantee, but those assets would have been protected.
How Trusts and LLCs Protect You
Had he taken this step, he would have been able to pass those assets on without the need for negotiation. We see this situation from time to time, so it’s worth considering: If you’re doing well and purchasing assets like a lake house, a second property, or investment property, consider placing them in an LLC or a trust. An LLC that you don’t own 100% of, or a trust, can provide significant protection.
It’s important to note that this advice isn’t about moving assets into a trust when things start going badly, as that won’t be effective. If you’re already in a tough spot, you should consult an attorney. (Give us a call ASAP!)
Many of our successful clients put their assets, and even some ownership of franchise entities, into trusts. We help them with this process as they set up their trusts. We’ll discuss more about trusts in future posts, but for now, take this tip to heart. It could be worth a great deal to you.
Key Steps to Consider
- Evaluate Your Assets: Recreational properties, second homes, and investments are key candidates.
- Set Up an LLC or Trust: Work with a legal expert to establish the right protective structure.
- Be Proactive: Acting early is essential to ensure protection.
We recommend reaching out to us, but there are many capable attorneys who can assist you.
Get expert legal advice on protecting your assets: Let’s talk.
Watch Nate Riordan’s 2 min LinkedIn Live video about protecting your assets and what to do if you find yourself in a bind with your guarantor. Nate Riordan is a Franchise Law and Bankruptcy Super Lawyer. He is also Founder & Partner at West Coast Law Franchise.
